EU: GERMANY-Merz Meets w/EU & NATO Leaders For First Time
Newly-installed German Chancellor Friedrich Merz has just wrapped up a presser in Brussels alongside European Council President António Costa following their meeting earlier this morning. He will then go on to talk with Commission President Ursula von der Leyen at 1030CET with a post-meeting presser at 1130CET (0530ET, 1030BST, live stream of all pressers here). After this, he meets with Parliament President Roberta Metsola at 1150CET with a presser at 1205CET (0605ET, 1105BST). Merz will then travel to NATO HQ in Brussels for talks with Secretary-General Mark Rutte, followed by a presser at 1330CET (0730CET, 1230BST, live stream here).
- On specific issues, Merz says that in a conversation with US President Donald Trump, Merz reiterated that in the wake of the deal Washington reached with London on 8 May that the EU has to be negotiated with on trade en masse, not on a country by country basis. Merz says he believes Trump 'now understands this'. Merz told Trump that he is in favour of zero tariffs trade agreement.
- On Ukraine, Merz says that he has the impression that Trump could raise the pressure on Russia. Adds that there is a draft peace plan from the EU that is similar to Trump's ceasefire approval. Merz said that Russia 'should be open to a lengthy ceasefire' as proposed by Trump, and that Germany is prepared to increase sanctions.
- Merz says that his administration "will not change the previous gov'ts position on joint EU debt'.
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GILT AUCTION PREVIEW: 4.375% Mar-30 gilt
- The DMO will return to the market this morning with GBP4.5bln of the 5-year 4.375% Mar-30 gilt on offer.
- This will be the fourth auction of the gilt, but marks an increase in auction size from the GBP4.25bln seen for short-dated gilts recently.
- Given market conditions and the larger auction size there might be a larger concession than usual this morning. We also note that large concession ahead of the 30-year gilt auction yesterday (followed by a 25 tick rally in gilt futures on the publication of the strong results).
- Bid-to-covers have ranged from 3.00-3.39x (albeit with slightly smaller auction sizes).
- The past couple of auctions have seen the lowest accepted price come very close to the pre-auction mid-price.
- There are two further 4.375% Mar-30 gilt auctions scheduled in FQ1 (7 May and 17 June).
- Timing: Results will be available shortly after the bidding window closes at 10:00BST with a further GBP1.125bln available to successful bidders through the PAOF.
FOREX: FX OPTION EXPIRY
Of note:
EURUSD 3.14bn at 1.1000/1.1060.
USDCNY ~1bn at 7.3500 (thu).
EURUSD 1.71bn at 1.1000 (fri).
USDCNY 1.11bn at 7.3500 (fri).
USDJPY 1.58bn at 145.00 (tue).
- EURUSD: 1.1000 (949mln), 1.1015 (354mln), 1.1025 (817mln), 1.1055 (422mln), 1.1060 (597mln), 1.1100 (490mln).
- USDJPY: 145.00 (628mln), 146.00 (625mln).
- USDCAD: 1.4280 (428mln).
- AUDUSD: 0.5975 (725mln), 0.6050 (230mln).
GERMANY: Coalition Agreement Likely Today-Reports
Reports from local media suggesting that confirmation of an agreement on a new governing coalition will be announced later today. The conservative Christian Democratic Union (CDU), its Bavarian sister party the Christian Social Union (CSU) and the centre-left Social Democrats (SPD) will hold a presser at 1500CET (0900ET, 1400BST) reports Hans von der Burchard at Politico. At present, coalition talks are still underway.
- Bild reports 'leaked' parts of the agreement: "Employees are to be given relief. Among other things, the tax rate is to take effect somewhat later and be somewhat flatter. This will provide relief for every taxpayer, according to sources involved in the negotiations. The SPD's demand for tax increases for high earners and small and medium-sized businesses will not be implemented."
- Die Welt reports that CDU leader and chancellor-in-waiting Friedrich Merz will speak to lawmakers from the CDU/CSU parliamentary group at 1800CET, with CSU leader Markus Soeder convening his group alone shortly beforehand at 1630CET. For the SPD, the executive committee and the parliamentary group executive committee will be informed at 1630CET, before the wider parliamentary group is told of the agreement at 1800CET.
- While the CDU/CSU will be able to approve a coalition agreement among the party grandees, the SPD grassroots membership will be consulted on the deal, lengthening the timeframe of a new coalition coming to power.
- The agreement comes with Merz under significant pressure, particularly from the right of the CDU/CSU, which has warned he is giving away too many concessions to the SPD in pursuit of a swift agreement. Recent opinion polling has shown the far-right Alternative for Germany (AfD) drawing level with the Union parties at the top of polls for the first time.
Chart 1. Federal Election Opinion Polling, % and 3-Poll Moving Average
Source: INSA, Forsa, GMS, Infratest dimap, Verian, FGW, YouGov, Allensbach, Ipsos, MNI. N.b. First data point represents result of 23 Feb federal election.
